Central Bank of Norway Raises Key Interest Rate Again

As expected by most analysts, the Central Bank of Norway‘s Executive Board decided Wednesday to increase the key policy rate by 0.25 percentage point to 2 per cent. But it might be the last rate hike for a while.

“Developments in Europe may prove to be weaker than expected, which may also affect the outlook for the Norwegian economy.”

Norges Bank

“Inflation has moved in line with projections and growth in the Norwegian economy appears to have picked up as anticipated. This suggests that the interest rate should be raised further towards a more normal level,” Governor Svein Gjedrem says in a statement.

Underlying inflation is now around 2 per cent and is likely to edge down further in the period to summer.

“As the activity level increases and the effects of the krone appreciation unwind, inflation is expected to move up again” says the Governor.

The global economy is rebounding. Oil prices and other commodity prices have increased. A loan agreement between Greece, euro area countries and the IMF has been concluded, but government securities markets remain turbulent.

Developments in Europe may prove to be weaker than expected, which may also affect the outlook for the Norwegian economy.

“The Executive Board therefore considered the alternative of leaving the key policy rate unchanged at this meeting,” says Governor Svein Gjedrem.

Here’s the full statement in English

Additional charts and graphs

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Norway's GDP Growth Slows Down

The Central Bank of Norway‘s contact enterprises in the regional network report that output has risen through winter, albeit at a slower pace than in autumn 2009. In addition employment has edged down over the past three months.

“Slowest growth was reported by suppliers to the oil industry and contacts in building and construction.”

Norges Bank

The regional network report that output has risen through winter, albeit at a slower pace than in autumn 2009. Output growth is expected to pick up somewhat over the next six months, the Central Bank of Norway says in a press release.

“Over the past three months, output growth has been strongest in the export industry and corporate services. Slowest growth was reported by suppliers to the oil industry and contacts in building and construction,” the Central Bank writes.

For the first time since spring 2008, contacts expect investment spending to pick up over the next 12 months.

“Employment has edged down over the past three months. Building and construction contacts are still planning some cuts in staff numbers, while the other private sector industries expect to keep numbers unchanged through spring.”

The rise in prices has been modest over the past 12 months and a more rapid rise in prices is anticipated by a majority of contacts in the year ahead.

As in the previous survey, annual wage growth in 2010 is expected to be 3½ per cent.

285 contact enterprises enterprises reported in this round.

The interviews were conducted in February.

Press release.

Full report from the Central Bank of Norway’s regional network (In English).

Additional charts.

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Fighting The Reality

European Markets Snap Shots

In Norway both stocks and NOK is down, while the rest of Europe is mostly ending the day on an upbeat because of the latest U.S. labor figures.

OSEBX:

USD/NOK:

DAX:

EUR/USD:

GOLD:

Norway: Key Policy Rate Remains Unchanged

The Central Bank of Norway‘s Executive Board decided Wednesday to keep the key policy rate unchanged at 1.75 per cent.

“Unemployment is relatively low, but both employment and the labour force have decreased somewhat further than anticipated.”

Svein Gjedrem

Since the October Monetary Policy Report developments in the Norwegian economy have been broadly in line with projections. The recovery in Norway and abroad has taken hold, and Norges Bank has raised the key rate in two increments to 1.75 per cent, the Central Banks writes in a Press Release.

The Executive Board’s strategy is that the key rate should be in the interval 1¼ – 2¼ per cent until the publication of the next report in March.

“We have chosen to keep the key policy rate unchanged at this meeting,” says Governor Svein Gjedrem.

Inflation is now slightly below 2.5 per cent. Activity is rising, but there are still available resources in the Norwegian economy. House price inflation is high and household demand is increasing. Exports appear to be picking up somewhat faster than expected. On the other hand, petroleum investment may be lower than projected.

“Unemployment is relatively low, but both employment and the labour force have decreased somewhat further than anticipated,” says Governor Svein Gjedrem.

According to Central Bank of Norway the world economy is rebounding but activity is low and unemployment is high in the US and in Europe. Growth is holding up in emerging economies, but is likely to be moderate in the US and Europe. Key rates are close to zero in many countries and are expected to remain low for some time ahead.

Here’s the Press Release in English.

Full statement of the Executives Board.

Charts and graphics.

Markets Snap Shots:

Here’s the market reaction to the Central Bank‘s rate decision.

Oslo Stock Exchange Benchmark Index (OSEBX):

USD/NOK:

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